Friday, January 20, 2012

TECHNICAL NOTE: Why did the seasonally adjusted unemployment rate stay steady at 5.2 per cent in December while the seasonally adjusted number of people in work fell 30,000? The standard explanation is "more Australians are giving up on looking for employment". In this case it is wrong. The clue as to why lies in seasonal adjustment. Most Decembers the number of people looking work but not finding it jumps. In 2009 it jumped 26,000. In 2010 it jumped 2500. In the December just passed it jumped 23,700 - not shabby and certainly not more Australians "giving up on looking for employment". The jump was heavily seasonally adjusted down to a fall of 3600 most probably because of the unusual seasonal behaviour I describe below.

A surprise decision by retailers to shy away from the usual Christmas practice of hiring extra workers has given Australia the worst jobs performance in two decades, sparking talk of two more interest rate cuts within months.

Bureau of Statistics figures released yesterday show instead of the usual boost of 161,000 mainly-temporary workers in December, employment climbed just 115,000 at the end of the year.

The Bureau says women aged 15 to 24 bore the brunt of the cautious approach, making 2011 the worst Christmas for young people wanting part-time jobs in more than 20 years.

The poor end to the year meant employment grew not at all during 2011, falling slightly by 100 jobs over the year. Its the first time jobs have been lost over the course of a calendar year since the aftermath of the last recession in 1992.

The outcome is dramatically at odds with the May budget forecast of 500,000 new jobs in two years and also at odds with the forecast in the December budget update of 114,000 new jobs during 2011-12... With the financial year half over employment has climbed 8100.

Acting treasurer Bill Shorten put a brave face on the figures saying they reflected global headwinds, the the high dollar and cautious consumers.

Australia was “not immune from developments in Europe”. A further deterioration in conditions overseas “would inevitably put pressure on the Australian labour market”.

Victoria and NSW bore the brunt of employer’s caution. Victoria has lost 11,300 jobs over three months, NSW 2000 jobs and South Australia 1600 jobs.

The mining states and territories continued to do well, Queensland putting on 5600 new workers, the Northern Territory 2500 more workers and Western Australia 1600. The ACT put on 800 and Tasmania 700.

Australia’s unemployment rate remained steady at 5.2 per cent. A statistical quirk pushed Victoria’s seasonally adjusted unemployment rate down from 5.5 to 5.2 per cent as the number of people saying they were looking for work fell faster than the number of people employed.

Deutsche Bank economist Adam Boyton said the real risk for employment was that sectors other than retail which have been hording labour while the dollar is high decide to follow retail and make do with less staff.

Opposition leader Tony Abbott said the state of the jobs market made it “crystal clear now is the worst possible time for the world’s biggest carbon tax”.

“The Australian economy, for all its comparative strength, created no net new jobs in calendar 2011. This is a very disappointing result.”

The figures show that although employers have been cautious about hiring new workers they have been asking their existing staff to put in more hours. Treasury estimates show that if instead they had put on more staff to work the extra hours employment would have climbed 96,000 during 2011.

The Reserve Bank board meets to vote on interest rates on February 7. The meeting will also have before it this week’s dismal World Bank forecasts, International Monetary Fund forecasts to be released next week, and inflation data out next Wednesday expected to show inflation falling. The futures market is pricing in two more rate cuts by May.